CNB Financial(CCNE) - 2019 Q4 - Annual Report

PART I. ITEM 1. Business CNB Financial Corporation is a regulated financial holding company operating CNB Bank and subsidiaries, growing through strategic acquisitions - CNB Financial Corporation is a financial holding company operating CNB Bank and other subsidiaries, with a history of strategic acquisitions and planned future growth[8][9] CNB Financial Corporation Overview CNB Bank - CNB Bank operates 42 full-service branches across Pennsylvania, Ohio, and New York, providing comprehensive banking and wealth management services[14][15] ERIEBANK - ERIEBANK, a division of CNB Bank, expanded operations in Pennsylvania and Ohio, including the acquisition of Lake National Bank and opening new offices in Cleveland[11] FCBank - FCBank, a division of CNB Bank, operates seven branches in central Ohio, following the acquisition of FC Banc Corp. in 2013[12] BankOnBuffalo - BankOnBuffalo, a division of CNB Bank, expanded its presence in Western New York with multiple full-service branches opened since 2017[13] Holiday Financial Services Corporation - Holiday Financial Services Corporation, a subsidiary, specializes in small balance unsecured and secured loans for higher-risk borrowers, operating nine offices within the Corporation's market area[9][17] Competition - CNB Financial Corporation operates in a highly competitive financial services industry, competing with various providers primarily on interest rates for deposits and loans[18] Supervision and Regulation - CNB Financial Corporation and its subsidiaries are subject to extensive federal and state regulation, including oversight by the Federal Reserve Board, Pennsylvania Department of Banking, and FDIC[19][21][25] Capital Requirements (Basel III) | Requirement | Old Minimum Tier 1 | New Minimum Common Equity Tier 1 | New Minimum Tier 1 | Total Capital Ratio | Minimum Leverage Ratio | Capital Conservation Buffer (2019) | | :---------- | :----------------- | :------------------------------- | :----------------- | :------------------ | :--------------------- | :--------------------------------- | | Ratio | 4% | 4.5% | 6% | 8% | 4% | 2.5% | - As of December 31, 2019, CNB Bank qualified as 'well capitalized' under applicable regulatory capital standards, indicating strong financial health and compliance with PCA regulations[39] Employees - The Corporation employed 559 individuals as of December 31, 2019, comprising 509 full-time and 50 part-time staff[60] Available Information - SEC filings, including the Annual Report on Form 10-K, are available free of charge on the Corporation's website (www.cnbbank.bank) and the SEC's website (http://www.sec.gov)[61](index=61&type=chunk)[62] ITEM 1A. Risk Factors The Corporation faces various inherent business risks, including adverse economic conditions, potential inadequacy of loan loss allowances, interest rate volatility, and geographic loan concentrations - The possibility of a return to recessionary conditions and financial market volatility could adversely affect the Corporation's business, financial position, and results of operations[64][65] - The Corporation is subject to extensive government regulation and supervision, with changes in laws or policies potentially increasing costs, limiting services, and negatively impacting financial results[81][82] - The replacement of the LIBOR benchmark interest rate could adversely affect the Corporation's business, financial condition, and results of operations due to changes in interest payments and market risk profiles[127][128] ITEM 1B. Unresolved Staff Comments The Corporation reported no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments from the SEC[129] ITEM 2. Properties The Corporation's headquarters and the Bank are located in an owned building in Clearfield, Pennsylvania, with 42 full-service offices, 24 owned and 18 leased - The Corporation owns its headquarters and 24 of its 42 full-service bank offices, with the remaining offices and Holiday Financial Services locations primarily under lease agreements[130] ITEM 3. Legal Proceedings There are no material pending legal proceedings to which the Corporation or any of its subsidiaries is a party, except for ordinary routine proceedings incidental to the business - No material legal proceedings are pending against the Corporation or its subsidiaries[132] ITEM 4. Mine Safety Disclosures The Corporation has no disclosures related to mine safety, as this item is not applicable to its business operations - Mine safety disclosures are not applicable to the Corporation[133] PART II. ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities CNB Financial Corporation's common stock trades on the NASDAQ Global Select Market under 'CCNE', with 4,032 shareholders of record as of December 31, 2019 - CNB Financial Corporation's common stock (CCNE) is traded on the NASDAQ Global Select Market, with 4,032 shareholders of record as of December 31, 2019[136] - No shares were repurchased by the Corporation in Q4 2019, with 249,731 shares remaining under the 500,000-share repurchase program[137][138] Cumulative Return to Stockholders (Index: 12/31/14 = 100.00) | Index | 12/31/14 | 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | | :------------------------ | :------- | :------- | :------- | :------- | :------- | :------- | | CNB Financial Corporation | 100.00 | 101.22 | 155.27 | 156.50 | 140.13 | 204.48 | | NASDAQ Composite | 100.00 | 106.96 | 116.45 | 150.96 | 146.67 | 200.49 | | SNL Bank NASDAQ | 100.00 | 107.95 | 149.68 | 157.58 | 132.82 | 166.75 | ITEM 6. Selected Financial Data This section summarizes five-year financial data, highlighting significant growth in net income, EPS, total assets, and deposits from 2015 to 2019 - The Corporation's net income increased from $22.2 million in 2015 to $40.1 million in 2019, with diluted EPS rising from $1.54 to $2.63 over the same period, and total assets grew significantly from $2.29 billion to $3.76 billion[147] Selected Financial Data (Years Ended December 31, in thousands, except per share data) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :---------------------------------------- | :---------- | :---------- | :---------- | :---------- | :---------- | | Income Statement: | | | | | | | Total interest and dividend income | $155,728 | $131,870 | $108,874 | $94,315 | $87,178 | | Total interest expense | $39,530 | $26,950 | $17,365 | $13,028 | $12,471 | | Net interest income | $116,198 | $104,920 | $91,509 | $81,287 | $74,707 | | Provision for loan losses | $6,024 | $6,072 | $6,655 | $4,149 | $2,560 | | Non-interest income | $25,975 | $20,723 | $21,435 | $17,691 | $17,094 | | Non-interest expenses | $87,508 | $79,342 | $70,037 | $67,118 | $58,752 | | Income before income taxes | $48,641 | $40,229 | $36,252 | $27,711 | $30,489 | | Income tax expense | $8,560 | $6,510 | $12,392 | $7,171 | $8,292 | | NET INCOME | $40,081 | $33,719 | $23,860 | $20,540 | $22,197 | | Per Share Data: | | | | | | | Basic EPS | $2.63 | $2.21 | $1.57 | $1.42 | $1.54 | | Fully diluted EPS | $2.63 | $2.21 | $1.57 | $1.42 | $1.54 | | Dividends declared | $0.68 | $0.67 | $0.66 | $0.66 | $0.66 | | Book value per share at year end | $20.00 | $17.28 | $15.98 | $14.64 | $14.01 | | End of Period Balances: | | | | | | | Total assets | $3,763,659 | $3,221,521 | $2,768,773 | $2,573,821 | $2,285,136 | | Loans, net of unearned discount | $2,804,035 | $2,474,557 | $2,145,959 | $1,873,536 | $1,577,798 | | Deposits | $3,102,327 | $2,610,786 | $2,167,815 | $2,017,522 | $1,815,053 | | Shareholders' equity | $304,966 | $262,830 | $243,910 | $211,784 | $201,913 | | Key Ratios: | | | | | | | Return on average assets | 1.17% | 1.12% | 0.89% | 0.85% | 0.99% | | Return on average equity | 14.05% | 13.46% | 9.97% | 9.69% | 11.23% | | Loan to deposit ratio | 90.38% | 94.78% | 98.99% | 92.86% | 86.93% | | Dividend payout ratio | 25.82% | 30.35% | 42.31% | 46.48% | 42.86% | | Average equity to average assets ratio | 8.36% | 8.33% | 8.93% | 8.76% | 8.86% | ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's assessment of the Corporation's financial performance, focusing on key measures like return on average equity, earnings per share, and asset quality - Management focuses on return on average equity, EPS, and asset quality as key performance indicators, aiming for disciplined loan pricing to maintain a strong net interest margin despite a flattening yield curve and competitive environment[159] - The Corporation anticipates increased non-interest costs due to growth but expects earning asset growth and enhanced non-interest income to offset these expenses in 2020 and beyond, positioning for sustained core earnings[160] Forward-Looking Statements General Overview Financial Condition Financial Condition Growth (Dollars in millions) | Metric | 2019 Balance | Change vs. prior year | % Change vs. prior year | 2018 Balance | Change vs. prior year | % Change vs. prior year | 2017 Balance | | :------------------------- | :----------- | :-------------------- | :---------------------- | :----------- | :-------------------- | :---------------------- | :----------- | | Total assets | $3,763.7 | $542.1 | 16.8% | $3,221.5 | $452.7 | 16.4% | $2,768.8 | | Total loans, net | $2,784.6 | $329.7 | 13.4% | $2,454.9 | $328.6 | 15.5% | $2,126.3 | | Total securities | $552.1 | $107.7 | 25.8% | $524.6 | $107.8 | 25.9% | $416.9 | | Total deposits | $3,102.3 | $491.5 | 18.8% | $2,610.8 | $443.0 | 20.4% | $2,167.8 | | Total shareholders' equity | $305.0 | $42.1 | 7.7% | $262.8 | $18.9 | 7.8% | $243.9 | - Cash and cash equivalents significantly increased to $193.0 million at December 31, 2019, from $45.6 million in 2018, primarily due to deposit growth[171] Securities Available-for-Sale (Year-End Carrying Value, in thousands) | Category | 2019 Market Value | 2018 Market Value | 2017 Market Value | | :-------------------------------------- | :---------------- | :---------------- | :---------------- | | U.S. Government Sponsored Entities | $127,094 | $132,694 | $108,148 | | State and Political Subdivisions | $104,363 | $136,031 | $137,723 | | Residential and Multi-family Mortgage | $276,636 | $206,053 | $109,636 | | Corporate Notes and Bonds | $8,082 | $11,777 | $17,200 | | Pooled SBA | $25,174 | $29,374 | $36,040 | | Other | $964 | $934 | $962 | | Total Securities Available for Sale | $542,313 | $516,863 | $409,709 | Gross Loans by Category (Year-End, in thousands) | Category | 2019 | 2018 | 2017 | 2016 | 2015 | | :-------------------------------------- | :---------- | :---------- | :---------- | :---------- | :---------- | | Commercial, industrial and agricultural | $1,046,665 | $916,297 | $704,606 | $567,800 | $475,364 | | Commercial mortgages | $814,002 | $697,776 | $644,597 | $574,826 | $448,179 | | Residential real estate | $814,030 | $771,309 | $713,347 | $652,883 | $574,225 | | Consumer | $124,785 | $86,035 | $80,193 | $74,816 | $78,345 | | Credit cards | $7,569 | $7,623 | $6,753 | $6,046 | $5,201 | | Overdrafts | $2,146 | $308 | $352 | $595 | $1,040 | | Gross loans | $2,809,197 | $2,479,348 | $2,149,848 | $1,876,966 | $1,582,354 | Nonperforming Assets (Year-End, in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :----------------------------------- | :---------- | :---------- | :---------- | :---------- | :---------- | | Nonaccrual loans | $21,736 | $14,262 | $15,653 | $12,510 | $12,159 | | Accrual loans > 90 days past due | $61 | $887 | $616 | $172 | $105 | | Total nonperforming loans | $21,797 | $15,149 | $16,269 | $12,682 | $12,264 | | Other real estate owned | $1,633 | $418 | $710 | $1,015 | $654 | | Total nonperforming assets | $23,430 | $15,567 | $20,606 | $16,354 | $12,918 | | Nonperforming loans as % of loans | 0.78% | 0.61% | 0.76% | 0.68% | 0.78% | | Nonperforming assets as % of assets | 0.62% | 0.48% | 0.74% | 0.64% | 0.57% | Allowance for Loan Losses Activity (Years Ended December 31, in thousands) | Metric | 2019 | 2018 | 2017 | | :------------------------------------ | :---------- | :---------- | :---------- | | Balance at beginning of period | $19,704 | $19,693 | $16,330 | | Total Charge-offs | $(6,751) | $(6,593) | $(4,077) | | Total Recoveries | $496 | $532 | $785 | | Net charge-offs | $(6,255) | $(6,061) | $(3,292) | | Provision for loan losses | $6,024 | $6,072 | $6,655 |\ | Balance at end of period | $19,473 | $19,704 | $19,693 | | Allowance to net loans | 0.70% | 0.80% | 0.92% | | Net charge-offs to average loans | 0.24% | 0.26% | 0.16% | Deposits (Year-End, in thousands) | Category | 2019 | % change 2019 vs. 2018 | 2018 | % change 2018 vs. 2017 | 2017 | | :-------------------------- | :---------- | :--------------------- | :---------- | :--------------------- | :---------- | | Demand, Non-interest bearing | $382,259 | 7.1% | $356,797 | 10.9% | $321,858 | | Demand, Interest bearing | $628,579 | 4.8% | $600,046 | 6.1% | $565,399 | | Savings deposits | $1,663,673 | 32.2% | $1,258,506 | 37.5% | $915,587 | | Time deposits | $427,816 | 8.2% | $395,437 | 8.3% | $364,971 | | Total | $3,102,327 | 18.8% | $2,610,786 | 20.4% | $2,167,815 | Capital Ratios and Book Value Per Share (December 31) | Metric | 2019 | 2018 | | :--------------------------------------- | :---------- | :---------- | | Total risk-based capital ratio | 12.51% | 13.21% | | Tier 1 capital ratio | 10.03% | 10.33% | | Common equity tier 1 ratio | 9.32% | 9.50% | | Leverage ratio | 7.86% | 7.87% | | Tangible common equity/tangible assets | 7.14% | 7.02% | | Book value per share | $20.00 | $17.28 | | Tangible book value per share | $17.45 | $14.69 | Results of Operations - Net income increased by 18.9% to $40.1 million in 2019, driven by a 10.7% rise in net interest income and a 25.3% increase in non-interest income[228] - Net interest margin (fully tax equivalent) decreased slightly to 3.69% in 2019 from 3.77% in 2018, as the cost of interest-bearing liabilities (up 33 bps to 1.45%) outpaced the yield on earning assets (up 20 bps to 4.93%)[229] - Total non-interest income increased by $5.3 million (25.3%) to $26.0 million in 2019, significantly boosted by $2.5 million in gains from securities sales and trading, compared to a $451 thousand loss in 2018[232] - Total non-interest expenses rose by $8.2 million (10.3%) to $87.5 million in 2019, primarily due to a $4.5 million (10.9%) increase in salaries and benefits, including a $2.2 million rise in incentive compensation[234] Income Tax Expense - Income tax expense was $8.6 million in 2019, up from $6.5 million in 2018, with effective tax rates of 17.6% and 16.2% respectively, primarily influenced by tax-exempt income and BOLI earnings[244] - The 2017 tax expense of $12.4 million included a $3.0 million adjustment due to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act[244] Contractual Obligations and Commitments Contractual Obligations and Commitments (December 31, 2019, in thousands) | Obligation | Year or Less | One to Three Years | Three to Five Years | Over Five Years | Total | | :------------------------------- | :----------- | :----------------- | :------------------ | :-------------- | :---------- | | Deposits without a stated maturity | $2,674,511 | $0 | $0 | $0 | $2,674,511 | | Certificates of deposit | $118,695 | $286,063 | $13,395 | $9,663 | $427,816 | | FHLB and other borrowings | $37,505 | $106,671 | $82,500 | $1,231 | $227,907 | | Right of use liabilities | $1,638 | $3,426 | $3,215 | $19,582 | $27,861 | | Subordinated debentures | $0 | $0 | $0 | $70,620 | $70,620 | | Total | $2,832,349 | $396,160 | $99,110 | $101,096 | $3,428,715 | Off-Balance Sheet Arrangements Applications of Critical Accounting Policies - Critical accounting policies involve significant estimates, particularly for the allowance for loan losses, fair values of debt securities, and fair values of assets/liabilities from business acquisitions[250][252][253][254] ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk The Corporation's primary market risk is interest rate risk, managed through asset/liability management policies and systems, with earnings shock scenarios indicating all risk levels were within policy tolerance limits - The Corporation's primary market risk is interest rate risk, managed through asset/liability modeling and simulation, with earnings shock scenarios showing minimal impact on net interest income over a one-year period[255][257][259] Change in Net Interest Income from Interest Rate Changes (December 31) | Change in Basis Points | 2019 % Change in Net Interest Income | 2018 % Change in Net Interest Income | | :--------------------- | :----------------------------------- | :----------------------------------- | | 400 | (0.9)% | 7.6% | | 300 | (1.0)% | 6.0% | | 200 | (0.3)% | 4.9% | | 100 | (0.6)% | 5.2% | | (100) | (2.9)% | (2.0)% | | (200) | (2.6)% | (3.6)% | ITEM 8. Financial Statements and Supplementary Data This item presents the Corporation's audited consolidated financial statements and extensive notes, along with an unqualified opinion from the independent registered public accounting firm - The consolidated financial statements for 2019 and 2018, along with the three-year period ended December 31, 2019, are presented in conformity with GAAP, as audited by Crowe LLP[265][519][520] - Crowe LLP provided an unqualified opinion on the Corporation's financial statements for 2019 and 2018, confirming fair presentation in all material respects according to GAAP[520] - The firm also affirmed the effectiveness of the Corporation's internal control over financial reporting as of December 31, 2019, based on COSO criteria[520] Consolidated Balance Sheets Consolidated Balance Sheet Highlights (December 31, in thousands) | Asset/Liability/Equity | 2019 | 2018 | Change (2019 vs 2018) | % Change (2019 vs 2018) | | :--------------------------------- | :---------- | :---------- | :-------------------- | :---------------------- | | Cash and due from banks | $187,748 | $43,327 | $144,421 | 333.3% | | Total cash and cash equivalents | $192,974 | $45,563 | $147,411 | 323.5% | | Securities available for sale | $542,313 | $516,863 | $25,450 | 4.9% | | Net loans | $2,784,562 | $2,454,853 | $329,709 | 13.4% | | Total Assets | $3,763,659 | $3,221,521 | $542,138 | 16.8% | | Non-interest bearing deposits | $382,259 | $356,797 | $25,462 | 7.1% | | Interest bearing deposits | $2,720,068 | $2,253,989 | $466,079 | 20.7% | | Total deposits | $3,102,327 | $2,610,786 | $491,541 | 18.8% | | Total liabilities | $3,458,693 | $2,958,691 | $500,002 | 16.9% | | Total shareholders' equity | $304,966 | $262,830 | $42,136 | 16.0% | Consolidated Statements of Income and Comprehensive Income - Net income increased by 18.9% to $40.1 million in 2019, from $33.7 million in 2018, and by 41.3% from $23.9 million in 2017[268] Consolidated Statements of Income Highlights (Years Ended December 31, in thousands) | Income/Expense Item | 2019 | 2018 | 2017 | | :---------------------------------- | :---------- | :---------- | :---------- | | Total interest and dividend income | $155,728 | $131,870 | $108,874 | | Total interest expense | $39,530 | $26,950 | $17,365 | | NET INTEREST INCOME | $116,198 | $104,920 | $91,509 | | Provision for loan losses | $6,024 | $6,072 | $6,655 | | Non-interest income | $25,975 | $20,723 | $21,435 | | Non-interest expenses | $87,508 | $79,342 | $70,037 | | Income before income taxes | $48,641 | $40,229 | $36,252 | | Income tax expense | $8,560 | $6,510 | $12,392 | | NET INCOME | $40,081 | $33,719 | $23,860 | | Basic Earnings Per Share | $2.63 | $2.21 | $1.57 | | Diluted Earnings Per Share | $2.63 | $2.21 | $1.57 | Consolidated Statements of Changes in Shareholders' Equity - Total shareholders' equity increased by $42.1 million to $305.0 million in 2019, primarily driven by net income of $40.1 million and other comprehensive income of $10.9 million, partially offset by cash dividends[271] Shareholders' Equity Changes (Years Ended December 31, in thousands) | Metric | 2019 | 2018 | 2017 | | :----------------------------------------- | :---------- | :---------- | :---------- | | Balance, January 1 | $262,830 | $243,910 | $211,784 | | Net income | $40,081 | $33,719 | $23,860 | | Other comprehensive income (loss) | $10,935 | $(3,653) | $15 | | Issuance of common stock, net | $1,423 | $0 | $19,294 | | Purchase of treasury stock | $(1,291) | $(2,454) | $(1,877) | | Cash dividends declared | $(10,358) | $(10,237) | $(10,094) |\ | Balance, December 31 | $304,966 | $262,830 | $243,910 | Consolidated Statements of Cash Flows - Net cash provided by operating activities increased to $51.9 million in 2019 from $43.8 million in 2018[273] - Net cash used in investing activities was $368.6 million in 2019, primarily due to net loan originations and purchases of available-for-sale securities[273] Consolidated Statements of Cash Flows Highlights (Years Ended December 31, in thousands) | Cash Flow Category | 2019 | 2018 | 2017 | | :-------------------------------------- | :---------- | :---------- | :---------- | | Net Cash Provided By Operating Activities | $51,907 | $43,768 | $30,763 | | Net Cash Used In Investing Activities | $(368,601)$ | $(451,588)$ | $(203,651)$ | | Net Cash Provided By Financing Activities | $464,105 | $418,038 | $179,050 | | Net Increase in Cash and Cash Equivalents | $147,411 | $10,218 | $6,162 | | Cash and Cash Equivalents, Ending | $192,974 | $45,563 | $35,345 | Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies - The Corporation's financial statements are consolidated and prepared in conformity with GAAP, relying on estimates and assumptions that can affect reported amounts[279][280] - The Corporation adopted new accounting standards for leases (Topic 842), premium amortization on callable debt securities (ASU 2017-08), and hedging activities (ASU 2017-12) effective January 1, 2019, with immaterial effects on financial statements, except for lease recognition[339][340][341] - The Corporation anticipates an increase of approximately 20-30% to its allowance for credit losses upon adoption of ASU 2016-13 (CECL) effective January 1, 2020, based on its fourth-quarter parallel run and assessment of loan portfolio characteristics[344] 2. Business Combinations - CNB Financial Corporation agreed to acquire Bank of Akron, with the merger anticipated in Q3 2020, adding $388.9 million in assets and $339.7 million in deposits[351] 3. Securities - Securities available-for-sale totaled $542.3 million in 2019, up from $516.9 million in 2018, with residential and multi-family mortgage securities being the largest component[352] - The Corporation recorded net realized gains of $152 thousand from available-for-sale securities sales in 2019, compared to $0 in 2018 and $1.6 million in 2017[360] - Management concluded that securities in an unrealized loss position were not other-than-temporarily impaired as of December 31, 2019, due to no significant creditworthiness deterioration and intent to hold until recovery[358][359] 4. Loans - Total net loans increased to $2.78 billion in 2019 from $2.45 billion in 2018, with commercial, industrial, and agricultural loans comprising 37% of the portfolio[363][366] - The allowance for loan losses decreased to $19.47 million in 2019 from $19.70 million in 2018, with a provision for loan losses of $6.02 million in 2019[369] - Nonperforming loans, including those individually evaluated for impairment, totaled $21.8 million in 2019, up from $15.1 million in 2018, with a significant portion being commercial, industrial, and agricultural loans[372][380] 5. Foreclosed Assets - Foreclosed assets increased to $1.63 million in 2019 from $418 thousand in 2018, with additions of $2.07 million and sales of $851 thousand[411] - Net expenses related to foreclosed real estate were $(61) thousand in 2019, compared to $(27) thousand in 2018 and $158 thousand in 2017[411] 6. Fair Value - Fair value measurements for most trading and available-for-sale securities use Level 1 or Level 2 inputs, while impaired loans often rely on Level 3 inputs from third-party appraisals with management adjustments[414][416] - As of December 31, 2019, total securities available for sale were valued at $542.3 million, with $2.8 million classified as Level 3 due to unobservable inputs[418] 7. Secondary Market Mortgage Activities - Loans originated for resale increased to $43.46 million in 2019 from $22.99 million in 2018, generating net gains on sales of $990 thousand in 2019[428] - Capitalized mortgage servicing rights increased to $1.57 million in 2019 from $1.49 million in 2018, with additions of $292 thousand and amortization of $214 thousand[429] 8. Premises and Equipment - Premises and equipment, net, increased to $54.87 million in 2019 from $49.92 million in 2018, with depreciation expense of $4.10 million in 2019[430] 9. Leases - Upon adoption of Topic 842 on January 1, 2019, the Corporation recognized $18.42 million in operating lease assets and $19.36 million in operating lease liabilities[434] - Total lease payments for operating and finance leases amount to $27.86 million, with $1.64 million due in 2020[435] 10. Goodwill and Intangible Assets - Goodwill remained stable at $38.73 million in 2019 and 2018, with no impairment identified[438] - Core deposit intangible assets from acquisitions are amortized, with estimated remaining amortization of $160 thousand in 2020[439][440] 11. Deposits - Time deposits maturing in 2020 total $118.70 million, part of the $427.82 million in total time deposits[442] - Reciprocal brokered deposits were $8.10 million in 2019, up from $3.22 million in 2018[442] 12. Borrowings - FHLB borrowings totaled $227.91 million in 2019, secured by $900.13 million in pledged loans, with remaining borrowing capacity of $422.49 million[444] - Subordinated debentures, including $50 million in fixed-to-floating rate notes issued in 2016, totaled $70.62 million, maturing in 2037 and 2026 respectively[446][448] Maturity Schedule of All Borrowed Funds (December 31, 2019, in thousands) | Year | Amount | | :----------- | :---------- | | 2020 | $37,505 | | 2021 | $33,740 | | 2022 | $72,931 | | 2023 | $51,244 | | 2024 | $31,256 | | Thereafter | $71,851 | | Total | $298,527 | 13. Employee Benefit Plans - The Corporation's 401(k) plan includes matching and profit-sharing contributions, with total expenses of $2.86 million in 2019[450] - The unfunded post-retirement health care plan's benefit obligation decreased to $2.03 million in 2019 from $2.43 million in 2018, primarily due to an actuarial gain[454] 14. Deferred Compensation Plans - The deferred compensation plan liability increased to $3.23 million in 2019 from $2.41 million in 2018, reflecting deferrals, dividends, and fair value changes[460] 15. Contingency - A sales tax assessment from the Pennsylvania Department of Revenue for $1.16 million was settled in December 2019 for $65 thousand, leading to a reversal of $181 thousand in previously recognized expense[462] 16. Income Taxes - Income tax expense was $8.56 million in 2019, with an effective tax rate of 17.6%, influenced by tax-exempt income and BOLI earnings[464] - The net deferred tax asset decreased to $3.59 million in 2019 from $6.30 million in 2018, reflecting changes in various deferred tax assets and liabilities[469] 17. Related Party Transactions - Loans and credit cards with related parties totaled $16.34 million in 2019, up from $8.60 million in 2018, while deposits from related parties were $40.93 million in 2019[473][474] 18. Stock-Based Compensation - Total compensation expense for restricted stock awards was $1.35 million in 2019, with 40,978 shares granted, and estimated unearned compensation for PBRSAs was $285 thousand at year-end[476][477] 19. Capital Requirements and Restrictions on Retained Earnings - Both the Corporation and the Bank met all capital adequacy requirements as of December 31, 2019, and the Bank was categorized as 'well capitalized' under PCA[478][479] Capital Ratios (December 31, 2019) | Ratio | Consolidated Actual | Bank Actual | | :------------------------------------ | :------------------ | :---------- | | Total Capital to Risk Weighted Assets | 12.51% | 11.87% | | Tier 1 (Core) Capital to Risk Weighted Assets | 10.03% | 11.24% | | Common equity Tier 1 to Risk Weighted Assets | 9.32% | 10.97% | | Tier 1 (Core) Capital to Average Assets | 7.86% | 8.79% | 20. Interest Rate Swaps - The Corporation uses interest rate swaps to hedge cash flows on subordinated notes, with one 5-year swap executed in 2018 for $10 million, designated as a cash flow hedge[483] - The Corporation also engages in back-to-back interest rate swaps for customers, where changes in fair value offset and do not impact results of operations[490] 21. Off-Balance Sheet Activities - Off-balance sheet commitments to make loans and unused lines of credit totaled $205.48 million and $461.04 million, respectively, at December 31, 2019[495] - Unfunded capital commitments to small business investment corporations and low-income housing partnerships totaled $5.83 million and $4.19 million, respectively, in 2019[496] 22. Parent Company Only Financial Information - The parent company's total assets were $378.40 million in 2019, with investment in bank subsidiary at $349.31 million[499] - Net income for the parent company was $40.08 million in 2019, primarily from equity in undistributed net income of subsidiaries and dividends from the bank subsidiary[499] 23. Earnings Per Share - Basic and diluted earnings per common share were $2.63 for 2019, $2.21 for 2018, and $1.57 for 2017, with no anti-dilutive stock options[502] 24. Other Comprehensive Income - Total other comprehensive income was $10.94 million in 2019, a significant increase from a loss of $3.65 million in 2018, primarily due to unrealized holding gains on available-for-sale securities[504][505] 25. Quarterly Financial Data (Unaudited) - Net income showed a consistent upward trend throughout 2019, increasing from $9.47 million in Q1 to $10.48 million in Q4[509] Quarterly Financial Data (in thousands, except per share data) | Metric | Mar. 31, 2019 | June 30, 2019 | Sept. 30, 2019 | Dec. 31, 2019 | Mar. 31, 2018 | June 30, 2018 | Sept. 30, 2018 | Dec. 31, 2018 | | :------------------------- | :------------ | :------------ | :------------- | :------------ | :------------ | :------------ | :------------- | :------------ | | Total interest and dividend income | $36,753 | $38,282 | $40,085 | $40,608 | $29,387 | $32,099 | $34,040 | $36,344 | | Net interest income | $27,758 | $28,794 | $29,901 | $29,745 | $24,100 | $25,826 | $26,878 | $28,116 | | Net income | $9,473 | $9,767 | $10,357 | $10,484 | $7,097 | $8,441 | $9,236 | $8,945 | | Net income per share, basic | $0.62 | $0.64 | $0.68 | $0.69 | $0.46 | $0.55 | $0.60 | $0.59 | 26. Revenue from Contracts with Customers Non-interest Income (Years Ended December 31, in thousands) | Non-interest Income Category | 2019 | 2018 | 2017 | | :--------------------------- | :---------- | :---------- | :---------- | | Service charges on deposit accounts | $6,402 | $5,759 | $4,809 | | Wealth and asset management fees | $4,627 | $4,172 | $3,724 | | Mortgage banking | $1,412 | $1,019 | $906 | | Card processing and interchange income | $4,641 | $4,261 | $3,763 | | Net realized gains on available-for-sale securities | $148 | $0 | $1,543 | | Other income | $8,745 | $5,512 | $6,690 | | Total non-interest income | $25,975 | $20,723 | $21,435 | - Revenue from contracts with customers, including service charges, wealth management fees, and card processing income, is recognized over time or at a point in time based on performance obligation fulfillment[513][514][515][516] Report of Independent Registered Public Accounting Firm ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Corporation reported no changes in or disagreements with its independent accountants on accounting and financial disclosure matters during the period - No changes in or disagreements with accountants on accounting and financial disclosure matters were reported[528] ITEM 9A. Controls and Procedures Management concluded that the Corporation's disclosure controls and procedures were effective as of December 31, 2019, with no significant changes in internal control over financial reporting during Q4 2019 - Management concluded that disclosure controls and procedures were effective as of December 31, 2019, providing reasonable assurance for material information reporting[529] - No significant changes in internal control over financial reporting occurred during the fourth quarter of 2019[529] ITEM 9B. Other Information This item indicates that no other information is required to be reported - No other information was reported in this item[533] PART III. ITEM 10. Directors, Executive Officers and Corporate Governance Information regarding the Corporation's directors, executive officers, and corporate governance practices, including the Code of Ethics, is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement, and the Corporation maintains a Code of Ethics for Officers and Directors[536] ITEM 11. Executive Compensation Details concerning executive compensation are incorporated by reference from the 2020 Proxy Statement - Executive compensation details are incorporated by reference from the 2020 Proxy Statement[537] ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, as well as related stockholder matters, is incorporated by reference from the 2020 Proxy Statement - Security ownership information for beneficial owners and management is incorporated by reference from the 2020 Proxy Statement[537] ITEM 13. Certain Relationships and Related Transactions, and Director Independence Information pertaining to certain relationships and related transactions, along with director independence, is incorporated by reference from the 2020 Proxy Statement - Details on certain relationships, related transactions, and director independence are incorporated by reference from the 2020 Proxy Statement[538] ITEM 14. Principal Accountant Fees and Services Information regarding the fees and services provided by the principal accountant is incorporated by reference from the 2020 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the 2020 Proxy Statement[538] PART IV. ITEM 15. Exhibits and Financial Statement Schedules This item lists the consolidated financial statements, confirms non-applicability of separate schedules, and provides a comprehensive list of exhibits filed as part of this report - Item 15 includes a list of consolidated financial statements, confirms the non-applicability of separate financial statement schedules, and provides a comprehensive list of exhibits filed with the report[541] ITEM 16. Form 10-K Summary This section explicitly states that no Form 10-K Summary is provided within this annual report - No Form 10-K Summary is provided in this report[544] SIGNATURES The report is formally signed by the registrant, CNB Financial Corporation, through its President & Chief Executive Officer, Joseph B. Bower, Jr., and Treasurer & Principal Financial Officer, Tito L. Lima, along with other directors, affirming compliance with Securities Exchange Act requirements as of March 5, 2020 - The report is signed by the President & CEO, Joseph B. Bower, Jr., and Treasurer & Principal Financial Officer, Tito L. Lima, confirming its submission on March 5, 2020[547][548][549]